Building your business on value, not pricing

What if I told you that you could make twice as much from doing the same exact work, just by re-evaluating your value, not your pricing?

From time to time, I get the privilege to sit down with product creators and service providers to counsel them about their business. When we begin to dive into their financials, it’s easy to spot those that understand their value versus those who are focused on pricing. Hands down, value focused business owners are making more money.

What are you focused on: pricing or value?

value

In 2006, I transitioned out of working at RELEVANT Media Group and started a marketing company called Motiveight Marketing Group. My immediate focus was to build my income to replace what I was saying goodbye to at RELEVANT.

Within a few months, I had completely replaced my income from my previous job and was on track to build my dream: a sustainable marketing agency. Approximately six months into business, one of my projects completed and I was on the hunt for a new client. It was then that I got a call from a company that wanted to hire me to help them rebuild a magazine that they had launched a year earlier. Given that I had experience in launching five magazines previously, I jumped at the opportunity to help.

After my first meeting the opportunity materialized and they wanted a proposal to help them revamp the magazine, create a sustainable business model and transition them from losing money, to making money.

I put together a plan and determined that this would take around 45-50% of my time every month. So what did I do? I came up with an hourly rate, multiplied by the hours, added a little extra for the unexpected and came up with a price of $4500/month. Does that process sound familiar?

Then it hit me: Was I considering the value of this engagement, or simply my price?

According to McGraw Hill’s article on Consumer Behavior and Pricing Strategy,

“…it seems that whatever is being purchased must be perceived to be of greater value to the consumer than merely the sum of the costs.”

With that in mind, let’s do some math: My services were going to cost the client $54,000 a year, yet what they were asking me to do was create and execute a business plan that would take them from losing money, to making millions. It became clear that the value of my services was worth far more than what I had priced it at and I needed to re-evaluate this opportunity based on value, not pricing.

I submitted a proposal for $10,000 a month and through negotiations we landed on $8,800/month for the term of the contract. That’s a 96% increase in revenue simply because I looked at the opportunity differently.

When I talk to business owners about value versus pricing, it’s almost always met with resistance. The most fascinating part of the resistance is that it has nothing to do with pricing—other people, even their competitors are charging more for the exact same thing. The problem is always in their perceived value. Don’t miss this important point:

You aren’t making as much as you could, because you don’t believe you are worth it.

You are worth it.

What you do is valuable.

What you do is needed.

They want you because you are the expert.

They want you because you have the experience they don’t have.

They want you because they can’t or don’t want to do it themselves.

They want you because you can do it faster and more accurately.

They want you because they trust you and you are trusted.

They want you because you’re connected—you know people that they don’t.

They want you because you’ll do it right, on time and within budget.

They want you because you nobody else does it like you.

If you read this list and you still are thinking about the “yeah, but’s…” then re-read the list again, and again.

If you read this list and you struggle to find how you’re different or unique from your competitors, then it’s time to go back and re-discover the founding purposes that gave you the momentum to start your business in the first place.

Competition is Everywhere

  • 328,259 books were published in the US alone in 2010. Yet, aspiring authors continue to strive to add to the total every day.
  • There are over 300 cable television networks available in the US, yet, I know of several that are in the process of launching as I write this.
  • There are countless fastfood and fast-casual chicken, mexican and chinese restaurants in the US, yet I recently sat next to a guy at a local coffee shop planning his new restaurant.
  • In Nashville alone, there are dozens of music schools and academy’s for students to attend private lessons and classes, yet I bought one of them this past August because ROOTS Worship Arts Academy is different then my competition. In fact, I so believe in this differentiation—we’re the only faith-based music, voice and dance academy in the city—that I expect to be a national franchise within the next 5-7 years.

I could go on and on, but I think you get the point. You have to do the work to differentiate yourself and understand the unique value that you bring to your clientele.

On Competitive Rates

One last thing about rates, pricing and value; if you are too cheap, you will price yourselves below your ideal clients trust levels. In other words, prospect clients will overlook you because they expect that they’ll get what they’re paying for:

cheap product/service = cheap quality

I’ve lost more than one significant opportunity because I was priced too low and I did everything I could do prove my value to the prospect—it didn’t matter. They wanted someone more expensive. I wish I was joking.

High-quality clients are willing to pay good money for high-quality products and services.

Consider this…

It’s a difficult reality when you realize that your own perspective is or could be limiting your business potential.

Author John Maxwell wrote about this topic in his best-selling book, The 21 Irrefutable Laws of Leadership (affiliate link). He calls it the “Law of the Lid.” The “lid” happens when your personal leadership ability determines your effectiveness and potential impact on your business future.

If you want to run a business that will grow beyond its current levels, then you have to realize that you are likely the only person standing in the way of that growth.

Remember, you are more valuable than you think you are, and I’m not just talking about making money.

Your worth to the world is inestimable.

 

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  • http://www.donaldmcallister.com/ Don McAllister

    I agree we downplay our worth all too often, especially at the beginning stages. On a side note, I’ll spread your music academy to Charlotte once you franchise it out. Don’t see much in way of competition..

    • http://www.kylechowning.com/ Kyle Chowning

      We’d love to be in Charlotte…soon enough. :)

  • Derek Smith

    Some great wisdom here – just shared with my brother and business partner.

    • http://www.kylechowning.com/ Kyle Chowning

      Thanks for stopping by Derek.

      • Derek Smith

        Just ‘discovered’ your blog and will continue coming back. Absolutely fantastic information!

  • pintoo patel

    its.great
    sir its really helpful to me to start my new business in fabrication field…
    sir, leave ur any text on pintooo87@rediffmail.com so I can be in touch with u to get suggess nd help from u….
    thanks
    pramod h patel
    india

  • http://www.cody-frew.com/ Cody Frew

    Great post! I’m playing with a little consulting work here and there and this helped a lot. I’ll keep coming back!

  • http://www.pineblossomswebsites.com/ Janet W.

    Thank you for this excellent article. Found it in the comments left at Michael Hyatt’s website. As a website designer, I struggle with value and pricing,
    especially with the economy like it is. Many business owners are using
    the DIY website builders, and not realizing that the websites look so
    unprofessional. I struggle with conveying to them how valuable it is to
    pay for the services, even if it’s not from me! I also struggle with my pricing, because there are other designers that know far more than me.:)

    • http://www.kylechowning.com/ Kyle Chowning

      Hi Janet. Thanks for stopping by. The challenge with web design is an issue with supply and demand. The sheer supply of web designers has driven the cost of creating website so low that there are too many reasons for biz owners not to consider less than ideal solutions. Having owned a web design shop years ago, i was constantly battling those who were new and undercutting my business. The only real money in this space is mid- to-large-scale custom sites that can’t be created by DIY solutions. Godspeed!

  • http://www.riverbedmarketing.com/ Todd Mumford

    Hi Kyle,

    Fantastic article, thanks for this. We all should literally read and embrace this concept once a week. It’s the foundation of building a valuable business in confidence.

    Queue, my re-read, next Monday :)

  • abek home and culture

    thanks, kyle! i stumbled across your article via my friend dennis’ post on FB. this is helpful to me as someone new to entrepreneurship. thanks so much for the guidance!

    • http://www.kylechowning.com/ Kyle Chowning

      Glad you found it to be helpful. Thanks for stopping by.

      Kyle

  • Tina L.

    Thank you so much for sharing your wisdom! I’m very thankful!